Passengers only care about one thing — and it's creating a huge shift at one of the world's oldest airlines

The 70-year-old company serves as the national airline of
Denmark, Norway, and Sweden.

SAS flies more than 28 million passengers a year on routes to
nearly 120 destinations from its hubs in Copenhagen, Oslo, and
Stockholm.

Although SAS is firmly entrenched in its position as one of
Europe's leading legacy carriers, the airline has come under
immense pressure in recent years from low-cost carriers such as
Ryanair, EasyJet, and Oslo-based Norwegian Air Shuttle.

At the controls of this multinational international airline is
the company's president and CEO Rickard Gustafson.

Gustafson spoke with Business Insider recently around the time of
the launch of the airline's new route from Stockholm, Sweden to
Los Angeles.

He said airline customers care about cost more than anything
else.

"This business has become a low-margin business," Gustafson said.
"If you want to jump into this game, you have to have a
proposition that's above all else really competitive on cost."

Gustafson — whose résumé includes a long career at GE Capital and
a stint as CEO of Codan Insurance — took over the top job at SAS
in February 2011.

"If you aren't cost competitive, don't even bother."

On low-cost carriers

"Today, the European market is actually defined by the low-cost
model," Gustafson said. "If you want to make money, you have to
compete against low-cost carriers."

In 1993, Norwegian Air Shuttle and its low-cost business model
opened up shop in Oslo. In the 23 years since, the airline has
grown to become a major competitor for SAS in its own backyard.
In 2015, Norwegian served more than 26 million passengers.

According to the SAS CEO, his company has to keep adapting to its
environment to survive.

"We are not done changing yet because the low-cost
competition is growing every day."

According to SAS, low-cost competition (including Norwegian Air
Shuttle) in Scandinavia has grown to cover roughly 35% of the
market. As a result of the efforts of SAS and other legacy
carriers, LCC's market share has stabilized at that 35% figure.

On Scandinavia's role in future of European
aviation

Amsterdam, Frankfurt, and London Heathrow have all become major
transit hubs by capitalizing on business from passengers using
the airport as a gateway to Europe and Asia.

SAS operates out of three main hubs in Oslo, Stockholm, and
Copenhagen. However, Gustafson does not believe Scandinavia and
his airline will head in that direction.

A Norwegian Air Shuttle
Boeing 787-8.Norwegian

"I don't really see using Scandinavia as a transfer hub,"
Gustafson said. "Our geographic location is not really ideal for
a transit-based business. To make it work, you would have to find
a way to generate a lot of traffic from central Europe to
Scandinavia and then you would also have to compete with the
Middle East and other European hubs.

"Trying to turn Scandinavia into a transit hub would be expensive
and dangerous for us to undertake."

As a result, SAS is more focused on developing routes that would
serve destination travelers.

"When we look for new destinations, we look for a good mix of
business and leisure travel. We look for routes with enough
demand for travel directly between that destination and
Scandinavia."

On the future of the airline's fleet

SAS operates a fleet of roughly 150 regional, narrow-body
mainline, and wide-body long-haul airliners from Bombardier,
Boeing, and Airbus. One of the airline's wide-body workhorses is
the Airbus A340-300.

The model was launched in the early 1990s for long-range
intercontinental routes.

However, because of its less than ideal fuel economy, the A340
fell out of favor with many of its operators over the past few
years. Airlines have elected to retire the four-engine jet in
favor of more fuel-efficient, twin-engine jets such as the Boeing
777 and Airbus A330.

An SAS Airbus
A340-300.SAS

But SAS will be sticking with its A340-300 fleet.

"We are keeping them around," Gustafson said. "Our next round of
expansion will be using our A340s."

A few years ago, the airline placed orders for new Airbus A320neo
single-aisle jets as well as A330-300E and A350-900 long-haul
wide-bodies. As a result of the cheaper fuel, ordering new
aircraft has become more difficult to justify, and the older A340
is now an attractive proposition.

"When we ordered our new [more fuel-efficient jets] the decision
was made with the price of fuel at $1,000 per ton. Today it's
half that amount," the CEO said. "To buy a new wide-body jet
requires hundreds of millions of dollars in costs. We can operate
our A340s for a tenth of that."